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Member, Beacon International Group, Ltd.
The U.S. property/casualty insurance industry’s reserves currently are slightly redundant, but expected continued reserve releases are a concern, A.M. Best Co. Inc. said in a Tuesday report.
The special report says the industry’s core, undiscounted reserves were slightly redundant by $1.9 billion at year-end 2009, after removing a $13.7 billion asbestos and environmental deficiency and a $22.5 billion statutory discount.
However, the industry is expected to continue to release reserves this year and next, albeit at a declining rate, Best said in the report. “These ongoing reserve releases will continue to boost calendar-year operating results, but will have a dangerous effect on the adequacy of the underlying loss and loss-adjustment expense reserves,” Best said in the report, “U.S. P/C Industry Loss and LAE Reserves Weakening.”
“With reserve releases expected to continue in 2010 and 2011, these overall deficiencies will continue to increase, and the core undiscounted reserves will go from a redundant to an inadequate reserve position,” Best said.
The adequacy of reserves varies dramatically by line, according to the report. For instance, the medical professional liability line had a $4.4 billion redundancy at the end of last year, which is primarily the result of significant price increases that began in 2003. But the workers compensation line showed a reserve deficiency of $18.3 billion, which includes $16.5 billion in statutory discounts, Best said.
Copies of the report are free to BestWeek subscribers at www.ambest.com. For nonsubscribers, the cost is $70 for the report and $185 for the report with accompanying data.